SOUTHINGTON – City leaders are considering auditing the personal assets of hundreds of local businesses.
While business owners must list equipment, machinery and other items related to their business, City Assessor Teresa Babon said nearly 500 of them refuse to do so or don’t list what assets they have. That forces her to make a best guess at the value of their taxable property, she told City Council leaders this week.
Businesses are taxed on real estate and motor vehicles along with smaller items such as computers, office supplies and furniture.
“We’re trying to make sure that the appropriate share of taxes is paid not only by residents, but also by businesses,” she said Monday.
Babon proposed that Tax Management Associates Inc., a national firm, undertake a three-year effort to audit every company that has more than $50,000 in personal assets. That is more than 400 domestic companies that would be subject to audit.
Representatives from Tax Management Associates told City Council members that the revisions will likely generate an additional $2 million in taxes. In thousands of similar audits conducted across the county, they found that just under half of businesses were misreporting personal property and that most of the corrections resulted in more tax owed to the city.
The company is paid a percentage of the additional tax revenue discovered.
In addition to the audit year, auditors would also look at the value of personal property for the previous two years. If discrepancies are found, state statute requires a 25 percent tax penalty.
Babon said her department conducts about 10 audits a year. There is not enough manpower to verify the reported lists of personal property of companies or to investigate those companies that do not make such a mandatory declaration.
About 2,300 entities in the city are required to submit a property declaration.
“I don’t get the information I need from these companies,” she told City Council members.
The goal of the city audit would not be to raise taxes, Babon said, but to make sure everyone is paying what they should be paying.
“That’s the inequity we’re trying to correct,” she said. Some businesses “don’t pay their fair share.”
City council members of both parties were concerned about burdening businesses with personal property audits. Such an audit would involve collecting documents and meeting with auditors to inspect the company’s personal assets on site.
Bill Dziedzic, a Republican councilman, said that’s a burden on many small businesses that face other challenges as well. There is no requirement to audit every business and Dziedzic suggested that the tax department conduct a more limited number of audits where it believes there are problems.
“After two, three years of Covid, this is the worst time for it,” he said. “It’s a very anti-business, very unfriendly policy change.”
Dziedzic is the owner of a real estate and property management company. He is not sure if his company has personal assets worth more than $50,000 and if his company will be subject to an audit if it is conducted. Dziedzic also was unclear about whether he and other business owners, such as Democratic Councilman Jack Perry, would be in a conflict of interest if the matter comes to a vote.
Perry, owner of a local trash and recycling company, also opposed the citywide audit.
“Who reimburses (business owners) when they find nothing?” he asked the audit. “We are checking our entire city and all our businesses. It just sends, I think, the wrong message to the community.”
Val DePaolo, a Democratic councilwoman, spoke in favor of the review during Monday’s meeting, though she said Tuesday she hadn’t made up her mind on the issue.
The assessor’s office already conducts audits, DePaolo said, and hiring Tax Management Associates or a similar firm would simply be a more efficient and fair way to do them.
“I think it’s a matter of fairness and equality. With (Tax Management Associates) you can see, are they correct?” DePaolo said.
The council took no action on the matter on Monday night. City Council President Victoria Triano, a Republican, said the issue warrants further investigation and discussion.
“We all have to go back to our clubs,” she said. “There are a lot of concerns about this, concerns for our companies. At the same time, yes, it could be a source of income for the city.”
Mark Lajoie, chairman of the Republican Town Committee and chairman of the board of fire commissioners, spoke during Monday’s meeting opposing the town-wide audit.
“I’m not convinced that starting something like this is in the best interest of the small businesses in our city or the taxpayers,” he said.
Republicans have a majority in the council.
[email protected]: @JBuchananRJ